Australian short and longer dated bond yields continued to slide lower last week as the Delta strain dampened economic optimism with many small businesses doing it really tough as the Sydney lockdown is being touted to last into September. it’s hard to imagine a pickup in optimism short-term but again we must remember major lows are often formed when things look their worse plus importantly MM has been calling this fall away in bond yields for months with the intention of establishing a bullish yield view across our portfolios:
- MM is looking for a catalyst to buy yields / sell bonds, the 3-years have seen their yield basically halve in just a few weeks.
Two scenarios are likely to herald the bottom for yields:
- Either a significant worsening of the COVID picture across Sydney which no longer sends bond yields lower – this could unfold this week.
- Or another bazooka load of stimulus from Scott Morrison although this doesn’t feel forthcoming at present.
We are looking to directly “buy bond yields” via an ETF in our Global Macro ETF Portfolio and by association tweaking our other portfolios back towards the “reflation trade” reducing high priced tech i.e. buy banks & resources.
